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Foreign Affairs, Defence and Trade Legislation Committee - 26/06/2014 - Estimates - DEFENCE PORTFOLIO - Defence Housing Australia

Defence Housing Australia

CHAIR: Minister, do you or an officer wish to make an opening statement?

Senator Johnston: No, thank you, Chair. I think we should just get on with it. But I do want to thank the officers for attending at short notice.

Mr Howman : I would like to make just one comment, if I may, a correction of the record from the National Commission of Audit where they erroneously recorded that Defence Housing Australia receives $1.2 billion in funding mostly from Defence. The second erroneous statement was that most of DHA funding comes from Defence or Defence employees. I would like to just simply pointed out that that DHA does not receive direct funding from the budget. In 2013-14, Defence will contribute to DHA approximately $200 million in rental subsidies for defence members as a portion of the members' pay and conditions of service and approximately $177 million in property and tenancy fees and charges associated with the provision of the housing portfolio not the $1.2 billion as listed by the National Commission of Audit. Defence and Defence employees funding amounts to approximately $515.6 million, which is about 45 per cent of DHA's annual revenue. The larger part of DHA's funding comes from private investors, from the sale and leaseback program—DHA's very successful investor program—and trust arrangements and the sale of land and property sales into the open marketplace, which I excess to needs.

Senator CONROY: I also thank you for coming at short notice and I appreciate that it was short notice. Hopefully, we will be very brief and make it as painless as possible. These questions, think, were largely put on notice. You have reasonable idea of what they are about so I hope we can get through them very quickly. It was a genuine mix-up at our end and no fault of yours whatsoever that we are here again today.

Senator Johnston: Thank you, Senator, for those remarks. I do appreciate them.

Senator CONROY: No, they are absolutely genuine. It was a mix-up at our end and we appreciate everyone being able to get here at short notice. The budget decision to conduct a scoping study on the sale of DHA has created a fair bit of uncertainty among members of the ADF on what is a pretty key issue around housing for them. We have noted that on your website you promise to keep ADF members and families informed as to developments in the scoping study. As background to the proposed sale it would be relevant to know if the current arrangements are satisfactory to the clients of DHA ADF members and their families. What are the results of surveys of client attitudes?

Mr Howman : DHA is continuing business as normal since the announcement of the budget. We have observed the performance that is relayed back to us by our customers and clients and I can say that there has been no reduction. There was a reduction in some of the support by investors in the first week, but since then it has been business as normal and has continued as business as normal.

Senator CONROY: What has been the trend in your survey response . You seem to be suggesting that there was not really any change. Are people—

Mr Howman : DHA has been undertaking a data cleansing exercise over the last couple of months with our lessors. The lessors are important to us because they are a major funding source for DHA. During this cleansing exercise we have telephoned a number of lessors, in fact more than 600, and approximately 100 initially raised some questions about the prospect of DHA's future ownership. The lessor comments were fairly unanimous in that they supported the continuation of DHA the way it was. However, in the initial one or two weeks after the announcement, people were asking those questions as there was simply a thirst for information as to what the budget announcement actually meant to DHA. DHA staff are not fully aware of all that. However since then, the issue has gone away. We are getting no comments and business is continuing as per normal.

Senator CONROY: So other than the issue you have identified, the uncertainty, do these surveys identify things that need to be improved?

Mr Howman : No. I must say the uncertainty was the blip on the radar for a week or two after the budget announcement—and that was it. Since then, the issue is not at the forefront of our lessors' minds, of our defence members' minds, of our staff's minds or of the development industry. They see it very clearly as just business as normal.

Senator CONROY: You said they were uncertain and at the time DHA staff were not able to really clarify. Is there a statement on the website or information that you have communicated to them that says, 'This is the case now'? Or is it still a work in progress? The minister might be more able to answer. Is it a work in progress still?

Mr Howman : There is a statement on the website right now. It says:

Defence Housing Australia (DHA) has been announced in the Federal Budget as one of the government agencies to be part of a privatisation scoping study. The results of this study will determine if and when DHA will be sold.

This study may consider items such as the objectives for a sale, including any community service obligations; regulatory requirements; actions required to prepare the business for sale; the industry in which the entity operates and preferred method of sale.

Until results of this study are known, we will continue to operate as usual. There will be no change in our: provision of housing and related services to Defence members and their families; property and lease management for our valued lessors; property investment and leasing opportunities; and building new residential homes and communities, as a result of this study.

The wellbeing of our stakeholders is of utmost importance to us. We will continue to keep you informed as information becomes available. If you have any questions or concerns please email Communications.

So, at this stage, we are not aware of what is occurring with the study. That is being handled by the Department of Finance.

Senator CONROY: You are unaware. So, if I were to ask you a string of questions about what is happening with the scoping study and who is doing it, you would not be able to give me any answers there at all?

Mr Howman : My answer to you will be that you would need to direct those to the Department of Finance, because I am not aware of the scope—

Senator CONROY: They have not consulted you yet?

Mr Howman : No. I would expect the scope would probably be similar to the study which was commissioned by the Prime Minister in 2008 on DHA. I do not know for certain but I would imagine it would be something along those lines.

Senator CONROY: What were the findings of that study? Apologies from someone who is a beginner to this area.

Mr Howman : The aim of that study was to recommend to the government the most efficient and effective model for the provision of housing and housing related services to Australian Defence Force personnel. So it was a study into DHA. I do not have the detail with me. I am not privy to the detail of that. But one of the parts of the scope was identification and assessment of viable alternative approaches to the delivery of the function—that is, whether it could be done by organisations other than DHA, and not have DHA providing that service. In summary it says: 'In concluding that the current model is effective and efficient, we note that from the research that there are some areas that could be enhanced.'

Senator CONROY: I am taking from the fact that you are still here that the government accepted that review's findings.

Mr Howman : Yes; thank you. I assume that is the case. That study was commissioned in 2008 and was concluded in 2011.

Senator CONROY: Has your organisation changed dramatically since 2008? Do you do less or do you more, or have you essentially kept doing the good job that you have been doing?

Mr Howman : Over the 25 years that DHA has been in operation has gone through cycles of how it does things. We deliver housing related services for the Department of Defence personnel. How we do that varies from time to time depending on the marketplace. At the beginning of DHA there was a lot of development activity and buying of house activity to replace the poor, shoddy dwellings—which I used to live in, because I was in the military back then—and a lot of houses were replaced. Therefore the business of DHA was able to slow a little then. A lot of our homes are passed across to investors through our very successful investment program—called Sale and Leaseback. Over time those leases expire and the homes need to be replaced. So, today, we are going through another ramp-up of business to replace many of the expiring leases—and that would be expected.

In addition to that, DHA has now been commissioned by Defence to also provide housing related services for many of its off-base single personnel. Many of those have difficulty finding good accommodation quickly. So we are currently doing that on their behalf. That really means looking at two-bedroom and two-bathroom apartments, primarily.

Additionally, the demography of the Defence staff is changing. They used to be baby boomers when I was in the Defence Force. Today, predominantly they are X-Y generation. Today, a large proportion of the Defence members are married with no children or with one child under the age of four. Those people do not necessarily want to live in a quarter-acre block with a Hills hoist and a Victor lawnmower. They would prefer to live in close, where they can visit the restaurants and coffee shops. So, there is a change in the types of housing that we are building.

So, the essence of what we are doing is unchanged but how we are delivering it is going through a change. That will probably slow down, again, once we have brought on these new properties.

Senator CONROY: That is not a change at large in the functions that you have done for 25 years.

Mr Howman : No. There was a change that was brought in around 2006, when the act changed slightly, to allow DHA to provide housing related services to staff of other FMA agencies—for example, Customs, Border Protection and these sorts of organisations. That is a very minor part of DHA's activity.

Senator CONROY: So a study commissioned in 2008 of your functions—functions which are consistent with what you are doing now—found that you are doing them very well.

Mr Howman : That is correct.

Senator CONROY: I just wanted to make sure. As a beginner, I was unaware of what that was. But you are still here, so I am assuming it was pretty good. I think we all concur in that.

Mr Howman : We are still here.

Senator CONROY: Have you seen the terms of reference for the scoping study, at all?

Mr Howman : No, I have not.

Senator CONROY: So you have seen absolutely nothing.

Mr Howman : That is correct.

Senator CONROY: You have not had a phone call, you have not been invited to a meeting? You have not been seconded to a working group?

Mr Howman : No. I have been advised by the Department of Finance that I will be informed on the process when the time is right. I do not know when that will be. I would imagine that we would then be asked to deliver data into the study and be involved with the provision of information.

Senator CONROY: Will you be in a position to update the website as you find out more details of the process? Will you be able to keep the people who look at your website informed about where it is at, or do you have to wait until some later point?

Mr Howman : We are very conscious that no information is often an issue, especially when you operate in a commercial world, as we do. We need to keep, especially, our Defence members involved in and informed as to what is happening, because it is their livelihoods and their living conditions that we are talking about. It is important for us to keep our very valued investors informed, because it is their investment that is being considered. And it is important to keep our valued staff informed as to what is happening.

So, as information becomes available that is appropriate for public consumption then we will keep our website updated.

Senator CONROY: Are there any asset sales taking place at the moment.

Mr Howman : DHA is constantly selling properties. We sell properties daily, but they are properties that are excess to our needs. They are simply business-as-normal sales. For example, when we do a small land development, the strategy is to integrate the Defence personnel into the community, so we get a good social cohesion mix. Consequently, in our developments we have no more than a third of the properties for DHA use; the other two-thirds we do not use ourselves. We dispose of those into the open market place. Those sorts of asset sales are continuing, and have continued for years. There is no wholesale sell-off of any parts of the big balance sheet.

Senator CONROY: I might come back with some specific issues on that. You did mention a correction of an issue, in your introduction, which may go to some questions I have here. So, please jump in. How much money was DHA provided by Defence in the budget?

Mr Howman : DHA does not get direct appropriation from the government at all. In fact, DHA is a full taxpaying entity. DHA pays full income tax, payroll tax and state equivalents—state taxes. In fact, we even pay our shareholder dividend back to government in the order of $50 million per year.

Senator CONROY: So, the money is provided on a fee-for-service basis?

Mr Howman : The money is all provided on a fee-for-service basis to DHA.

Senator CONROY: That is what I thought. As I think you described it, there seems to have been some confusion recently. Somebody misclassified something.

Mr Howman : Yes. I think there was some confusion by the Commission of Audit.

Senator CONROY: Surprise, surprise! That is a fairly basic mistake, but let's not worry. How much does DHA cost the budget for its infrastructure—that is, what does it cost the government to ensure DHA exists so that Defence can buy services for it?

Mr Howman : DHA does not get any appropriation at all. In fact, DHA pays tax—it is a full tax-paying entity—and pays dividends back to government. We do not absorb any appropriations from government other than the payments fee-for-service that we receive from Defence for the rent and fees and charges.

Senator CONROY: What is DHA's asset base at the moment? Is it growing or shrinking?

Mr Howman : It is around 1.3—

Senator CONROY: $1.3 billion? Sorry.

Mr Howman : If I may continue. Our net assets at cost is approximately $1.3 billion, and that has been reasonably stable. It fluctuates a little around that over the last three years. Net assets at market value is about $2.2 billion. That again is relatively stable because we are buying and selling constantly.

Senator CONROY: What is the dividend paid to the Commonwealth by DHA?

Mr Howman : The dividend DHA pays to the government is approximately $50 million. That is reasonably stable. It has been varying slightly—maybe $1 million or $2 million above that or below that.

Senator CONROY: Approximately $50 million, you said?

Mr Howman : Approximately $50 million. Last year DHA paid dividends of 10 per cent over and above that that we budgeted to provide and this year I think we will be in a very good position again to do that again.

Senator CONROY: You indicated you had been consistent over time in the past and you think you will be consistent into the future around that figure?

Mr Howman : Yes.

Senator CONROY: Without saying, 'It is $50 point whatever,' I am happy to take a few million either side of that is a reasonable guesstimate.

Mr Howman : DHA makes dividend payments to government based on a 60 per cent profit after tax—so the net profit after tax.

Senator CONROY: And that has not been changed?

Mr Howman : In 2013-14 the total amount of dividends paid will be $51.1 million. Dividends are paid in arrears and the dividend payment in 2013-14 relates to the dividend declared on the profit generated by DHA in the 2012-13 financial year. If I look into the future, as the business would grow you would expect that the EBIT would grow, you would expect that the NOPAT impact would grow, so you would expect that the profit and the dividend payments would grow according to the business and the markets.

Senator CONROY: Sounds like it is a pretty good business.

Mr Howman : I think the review in 2008—

Senator CONROY: Made that point.

Senator Johnston: It is very well run, Senator.

Senator CONROY: No, I agree. It is sounding very well run. When the DHA sells property, what is the consultation process with military families?

Mr Howman : There are a couple of prongs to that question, because there are different sorts of property that DHA sells. I could start first of all with the sale of excess land. DHA does developments where the industry is unable to provide retail land, so we undertake developments ourselves. The excess land there is the approximately two-thirds that we do not wish to use because we want to integrate the Defence people into the community. So we sell those without consultation with Defence: they are just sold on the open market place.

The next type of property we sell is property off our balance sheet which we have held for many, many years. They are old properties, they have dated—they are passed the use by date for DHA to meet the high requirements which we need to meet for our service personnel. So we dispose of those when they are of no further use. The way we go about doing that is we wait till a posting cycle—we wait until Defence members are posted out of those houses—and then we go on place those for sale through agents.

Senator CONROY: Just in terms of the families that are living in the houses, how does that work?

Mr Howman : Families will be living in the house. We will identify the house as being an older style house beyond its useful life for DHA's purposes.

Senator CONROY: What test do you apply there?

Mr Howman : Sure, for example there is a Defence new housing classification policy which defines the housing style that is to be used. Many of our houses are what we classify as 'transitional', so they are older. They may be small, dingy houses; they may not have the appropriate air conditioning that is needed today; they may not have the security requirements; or they may not have a coat cupboard or these sorts of things that are required by Defence. We will identify those and then look to dispose of them, but we will not force Defence families out of the house to sell it from under them.

Senator CONROY: So if they are not posted somewhere else, you wait until they vacate it through a posting. You identify the ones you want to sell, family living in it, no progress until after the family has been posted somewhere?

Mr Howman : That is correct. Yes, DHA is very conscious—

Senator CONROY: Or if you offer them a better property that they might want to move into?

Mr Howman : Yes, if they wish to move into a better property, that is fine and we would absolutely encourage that. We are very conscious that we are here for the serving Defence men and women of Australia. We are there as a part of the retention and employment strategy.

Senator CONROY: Given your current model, what sort of housing and employment opportunities do DHA offer to the community in the locations where it operates?

Mr Howman : As an example, DHA has developments underway under contract today of around $1.4 billion spread around the country. The business within DHA that looks after those directly on those projects is under 50 staff. We outsource as much as we can outsource. I have a list here which I could go through of the companies that we currently employing. The list is about 3,000 long, so I don't think you wish me to go through every one.

Senator CONROY: No.

Mr Howman : We extensively employ contractors to do our work outside right from lawn mowing contracts. We have no staff within DHA or the Commonwealth that we use to do carpentry work, electrical work, plumbing work, grounds maintenance work, building work, development. We do not drive bulldozers, we do not dig holes. We outsource all that work and, where possible—and I have made this point very clear to the Public Works Committee in the past—we employ small, local firms, and we do that for good reason. Primarily we do it to make sure that the wealth, if I can say that, is distributed to the small communities where we operate to boost the economies of those small communities. But, more importantly, the way you build houses in the tropics is very different from the way you do in the Mediterranean climates like Melbourne and so forth.

Senator CONROY: We have a balmy climate!

Mr Howman : The tropics are very interesting.

Senator Johnston: Especially in these last several days!

Mr Howman : Yes, sorry to bring up Melbourne, Senator! But it is important to know that the contractors that we use are very attuned to the local requirements, and the tropics are very important. The way you build in the tropics with flow-through ventilation is an example. We do not build ducted air conditioning systems in the tropics, because you get mould in the pipes and so forth, whereas in the southern climates—Sydney—you may do just that.

Senator CONROY: Tasmania.

Mr Howman : Tasmania, yes. So it is very, very important that we use locals. Then, of course, every jurisdiction that we build in has different rules and regulations, so each council has its planning methods and regimes and so forth. So it is very important that we use local contractors who understand and build within those jurisdictions, so they understand the rules and can get our plans approved in a very timely fashion.

Senator CONROY: Thank you. Do you provide any social housing? Do you have any relationship with state and territory governments for the provision of social housing?

Mr Howman : DHA is here to provide housing related services for Defence. Many of those Defence spaces now decades ago were on the fringes of the cities. Today they are in the cities. I will give you an example of Enoggera in Brisbane. Enoggera is about seven minutes or eight minutes' drive from the centre of the city. So the houses that DHA had their 20 years ago are no longer suitable for DHA, but we are still required to provide housing. In fact, Enoggera, as an example, is a growing area. So we need to provide housing. The industry is unable to provide housing that meets our requirements or land that meets our requirements close to the bases. We can along way out. For example, for Enoggera, we have many houses at North Lakes, which is a 45- to 50-minute drive to work every day. However, in discussions with various state governments around Australia, we determined that the states have state land very close to where we need to be. So we do in fact have an agreement with Queensland whereby we will purchase, from the state, state land to enable us to build defence housing on that. However, in doing so, rather than paying full cash for that land we are swapping. We are building, in kind, some accommodation units. What the state does with those accommodation units I do not know. They may have firemen in there—

Senator CONROY: You are refurbishing the old ones?

Mr Howman : No. Where they have some land with maybe a couple of old houses—

Senator CONROY: I meant to say you refurbish them to give them to the state government, or the state government take them and refurbish them?

Mr Howman : As an example, at Enoggera, with the Queensland government, they have old houses close to the base which are excess to their needs; they do not meet their needs anymore. It is good land, from a DHA point of view, in location. So they are bulldozing the properties, the houses. They provide the land to DHA. There is a cost associated with that, and we note what that cost is. Rather than DHA paying the money for that, we build some accommodation on there, of which we will take some and we will give some to the state to do whatever the state wishes to do with that—I do now know what; it is up to the state. I will give you a clear example. One contract we have underway with Queensland right now is to build 17 types of dwellings for the state. In return they are giving DHA an equivalent cost of three great located parcels of land on which we will build 49 dwellings for DHA use. It is a good deal, in that DHA is getting access to great, well-located land, and there will be some social outcome that the state will benefit from. How they benefit I do not know.

In the Northern Territory we have a very similar deal underway right now. It is currently only in the planning stages. But we will be constructing integrated dwellings there. What I mean by that is: of the dwellings that we construct, in the built form in the complex there will be some dwelling units which the state will use for something; DHA will use some for our use, and any excess we will sell in the open marketplace. So in a complex you will have good social integration of various types of people from the community. So it really helps DHA to meet its needs of getting great access to land very close to bases where otherwise the private sector is unable to provide.

Senator CONROY: I want to go to one particular sell-off. I noticed an article in The Sydney Morning Herald in April around the SAS barracks at Swanbourne in Perth. Are you familiar with that article?

Mr Howman : I am not familiar with the article but I am familiar with Swanbourne.

Senator CONROY: Okay. So when was the decision made to sell off the Defence housing in Swanbourne?

CHAIR: I have had a request from Senator Edwards that the article be tabled. Could that be done, please?

Senator CONROY: Yes, I am happy to.

Mr Howman : Senator, I read newspapers every day and—no disregard for the reporters who do an outstanding job—

Senator CONROY: Misleading the Senate at estimates is a quite serious offence. There is a jail cell downstairs; not many people know about it!

Mr Howman : This is no slur on the great work which is done by the media, but sometimes the information is not appropriately accurate. I would not say 'misleading'—I guess it is the research that is done—

Senator CONROY: David and I would have no idea what you mean by that.

Mr Howman : I am sure you wouldn't, Senator.

Senator JOHNSTON: We see nothing but accuracy every day!

Mr Howman : Back to your point, though: I am very aware of that area. DHA has a housing estate there, with 153 houses on it, which abuts the Campbell Barracks, which is where the certain capability of Defence sits, and we have been looking at that estate for at least the six years that I have been involved in looking at that. The reason we are doing that is that those dwellings are well over 20 years old, they were poorly built at the time. I do not know who built them, so it is no slur on who built them, but they were built probably for the conditions of the day—which is not the conditions of today. They are small—on average 130 square metres. They have huge backyards. In the village area that DHA owns 153 houses on, we do not own most of the land. Much of the land is owned by the state. There is a big parkland owned by the state and managed, I understand, by the local council. The Commonwealth owns land in there as well. So, DHA simply owns 153 lots of land. What we have been investigating now for a number of years is how we can get better utilisation out of that land and provide much better-outcome living accommodation for the Defence personnel, the families and the children.

Senator CONROY: On the same site?

Mr Howman : Yes, on that site. There is a central spine parkland that runs for hundreds of metres down the centre of the estate. It acts more like a waterway than a parkland. It is quite steep. There are some basketball rings I have looked at that are very much in disrepair—unused. If you kick a football at the top of the parkland it is quite a long walk to the bottom until you finally get your ball back. So, it is not used. When it rains the water rushes down through the central core spine and rushes into the back of our houses, which butt onto it.

Senator CONROY: For the purposes of the discussion, it is the paragraph on the second page that is of relevance—just to save everyone reading the whole thing.

Mr Howman : I will look at that after this, if you wish. And there are houses on that estate right now. I went into one myself only a couple of months ago. I went into the bedroom with the spouse of the Defence member—who, by the way, was deployed at the time, so she was at home with her children by herself. Currently in that house we have rises holding the ceiling up with big boards across the top on either side of her bed. That is the state of those houses. They are poor. They need to be bulldozed. Approximately 30 per cent of the houses there do not meet the Defence standards today. So, we have been investigating ways to renew those and give a much better urban outcome for the people living there and also for the community. And there are many options for doing that, and that is what we are currently doing. There is zero mandate right now, today, for DHA to sell any land that we may own. However, having said that, as I mentioned before, much of the land there within the village is not owned by DHA. And I do note that the local council very early last year was contemplating selling off some of the parkland. That article might refer to that; I am not sure.

Senator CONROY: Can you give us an assurance that no decision has been made to sell of the Defence housing there?

Mr Howman : Right now, today—

Senator CONROY: No, I am being specific. I will come to that. Right now, there is no decision.

Mr Howman : I am going to give you a very specific answer. Right now, today, there is no authorisation for DHA to sell off any of the DHA-owned land in the Seaward Village estate.

Senator CONROY: Being a beginner to this, I will ask, who gives you authorisation? You make it sound like there is an external entity—possibly sitting next to you—that gives you an authorisation. So, what is the authorisation process?

Mr Howman : DHA has a board of directors, and that board of directors operates today under the CAC Act. As of 1 July, they operate under the PGPA Act. And they have judicial responsibilities to ensure the good, effective running of DHA. So there is an appropriate approval process to go through there. There currently is a covenant over the land that DHA owns in Seaward Village that says something to the effect that we would need to seek ministerial approval to sell any of that land off. But be mindful that that land today is extremely inefficient in use, with huge backyards. We get a lot of complaints by the spouses about those very big backyards. The plans that we are looking at today, by the way, increase the house sizes from 130 square metres to 180 square metres. The average of houses we provide for the rest of the Defence Force is around 160 to 170 square metres. In the planning stages at the moment the backyards that we are planning to provide into the future are double the size of the Defence requirement around the countryside and in fact three times the size needed in Sydney.

Senator Johnston: And, Senator, if I could just interrupt, you would know that most of the men of the households are often away for extended periods of time. Accordingly, that burden to maintain the gardens and surrounds of the house is proving to be somewhat of an issue.

Senator CONROY: Have you done a survey of the families living there to ascertain that?

Senator Johnston: I have been down there twice in the last six months.

Senator CONROY: I was about to say that given its proximity to you I am sure you have visited, but have the families done a survey to give you their views on whether they like their backyards or not?

Mr Howman : We are continually talking to Defence people around Australia. We have well over 100 property managers who spend a lot of their time in the lounge rooms of the Defence members. In fact, DHA has staff members who are spouses of people living on that estate, so we have our own staff living there today.

Senator CONROY: I appreciate that. What I am asking you is whether you have taken a survey to ask, 'Do you want a bigger house on a smaller block of land nearby?'

Mr Howman : DHA has not conducted a written formal survey. We have engaged with the members and we have taken input from what the members' needs might be. And that of course will go into any planning we do. Before any final decisions are made we will be going back to the members. And, more importantly, we will be going back to the spouses and the families of the members who actually live there while the members are away.

Senator CONROY: I do not know about you, but I thought a backyard was usually pretty good for kids.

Mr Howman : No, it is not; not at all.

Senator CONROY: That is good of you to speak on behalf of everybody who has children!

Mr Howman : I have children; in fact, I have grandchildren. In fact, I can talk for the general population of the world.

Senator CONROY: That is a very big call! But I admire your boldness, speaking on behalf of the world.

Senator Johnston: But you need to listen to what he is about to say.

Mr Howman : The design of living around the world has moved as the baby boomers have moved and the X and Y generations have come on. People do not want big backyards now. They spend all their time on them. What people want today—

Senator CONROY: I would be more comforted if you had taken a survey of the families—not an anecdote, like 'We've got a friend who lives there' or 'I've heard a bit of gossip' or 'the minister has chatted to a couple of families'. I am accepting all that as absolutely genuine.

Senator Johnston: We actually have meetings of the personnel.

Senator CONROY: I know. But give people a chance, in a private survey, to tell you what they think. I would be much more comforted if you sat here next time and said, 'We've done that, Senator Conroy, and 80 per cent of them said they really are happy to have their backyard halved for a decent house.'

Mr Howman : We can very easily take a survey and—

Senator CONROY: It does not sound like it is a lot of premises.

Mr Howman : No, it is not a lot. We will do a survey. It is not hard to do. We will do a formal survey as well as the informal surveys.

Senator Johnston: And perhaps I can also add that you need a bit of a mind's-eye picture about this particular suburb—

Senator CONROY: Yes, I have a couple of questions, because it is clear that there is an integration issue with the local council. Does the local council have homes there as well already?

Senator Johnston: The public has, but there is a huge parkland, centrally located, around which the houses are located. That park has quite considerable open space. You could have several games of kick-to-kick running at the same time, and there is a detailed and very well-used set of children's play equipment and other things there.

Senator CONROY: Who owns those?

Senator Johnston: The local authority does—I think, but I stand to be corrected.

Senator CONROY: Not DHA?

Senator Johnston: No.

Senator CONROY: Are there any DHA assets on the state crown land or the council land?

Mr Howman : No. DHA has its own land. We have 153 houses and the house blocks.

Senator CONROY: You have nothing on council land and nothing on state crown land?

Mr Howman : No. That is correct.

Senator CONROY: Just your own land.

Mr Howman : Yes. We have title to our land, and that is all we have title to.

Senator Johnston: But we do want to improve the quality of accommodation there—and I want to underline this—but we want to do it with extensive consultation. So, we will take onboard your survey requirements. We do not think it is too difficult; I certainly do not. But I have been down there for the specific reason of consultation, and the assistant minister has been down there for that reason too. We have had about four visits in the last six months.

Senator CONROY: What is your understanding of what the families want?

Senator Johnston: First of all, the air conditioners are evaporative air conditioners. Close to the coast in Perth is not suitable for that. It is really very hot in the summertime—42 and 43 degrees. They are in a bit of a valley. It is very, very hot. So we have to fix that in the immediate short term. The gardens and the grounds look a bit tired. We need to take some responsibility to fix that up and generally provide a better quality of accommodation. So, we are consulting the experts—and, might I say, the expert is sitting right next to me—

Senator CONROY: He speaks on behalf the world, apparently.

Senator Johnston: He does, and he speaks very well on behalf of the world, in terms of this sort of expertise. So, we are consulting DHA as to how best to go forward, but making sure that we talk to the personnel on the base as to what they and, mostly importantly, what their spouses want.

Senator CONROY: The air-conditioning sounds like a genuine problem. Are you planning on fixing that immediately?

Senator Johnston: We are looking at that. Whilst it is winter time there now we are looking to try and address that as quickly as—

Senator CONROY: And that is a separate issue—

Senator Johnston: It is an immediate issue that I think we want to try and address no matter what, as soon as we possibly can. We are working on that together to see how cost effectively we can go.

Senator CONROY: Mr Howman has probably not had a chance because he has been engaged on behalf of the world, but everybody else has possibly had a chance to read the article. It indicates that some of the homes overlook Swanbourne barracks. I am talking about some of the other homes. There is an issue around security, depending on what development is done right next to the barracks. I am interested in your perspective on how we maintain the security at the barracks, given that it does things that we will not talk about. Can you walk me through how you protect our security, given that councillors—I have been a councillor, so I can say these sorts of things—tend to look at dollars before they look at anything else, whether they want to build on flood land, next to a petrochemical plant or possibly overlooking a high-security military barracks because there is a very nice view in the other direction, as well.

How are you managing the discussions? Do you have a capacity to say, 'No, you can't build 100 homes on that piece of land because you will then have a national security issue? How does that work?'

Mr Howman : Today, Seaward Village—the housing estate there—is open to the public. Anyone can go there.

Senator Johnston: You can drive around it.

Mr Howman : In fact, a portion of the base is open to the public. That is the area that has the living-in accommodation for the single people. You can drive in there and look at the base. So, when you are talking about security on the base you need to ask, 'What part of the base are you talking about?' There is a piece of publicly accessible land abutting Seaward Village—just south of Seaward Village—which is higher than our houses. I have not been to the top of it, but undoubtedly you would get a better view of the base—whatever you term 'the base'—than you would from our estate.

That has been the situation since the Seaward Village has been there. Obviously, some decisions were made a number of decades ago when that was built. I was not privy to those discussions. Needless to say, as DHA moves forward in modernising that whole estate for our great serving men and women, then we would work very closely with our key client, the Department of Defence. We take very seriously the way we integrate with them and work with them on security aspects. We currently have over 1,300 of our own properties on Defence estates—on bases. So, we take security very seriously, and work very closely with the Department of Defence.

Senator CONROY: Minister, I know a few years ago that the government ran a campaign, 'Be alert if you see something suspicious.' We are doing a massive upgrade around all our defence facilities around the country. Those are all good things. It would seem to me that if someone is able to walk around on a cliff top—apologies if it is not a cliff—or a hill top where you would notice if they had a camera or they were doing something suspicious and you would phone the alert line. But if there is a group of houses up there any suspicious activity would be camouflaged entirely.

I am looking forward, one day, to visiting the base. I do not know what goes on there but it is suggested in this article that there are a few things that you would not want to be broadcast to the world. How do you maintain security—this is more a question for the minister; you said you consult with him—and how can we guarantee that if houses are built up there—

Senator Johnston: The first thing we do is consult the service personnel and their spouses as to the level of security that they themselves want. Bear in mind that there is a sprinkling of civilians who are in the proximity of what we call, collectively, Seaward Village. Having done the consultation, they are very happy to just be part of the local community. Security is always of concern. If we are going to gate the community—and I am not suggesting that we are—we need local authority permission to do that. At this stage, I do not think that is what is required.

The most important thing is that the local authority really does enjoy the existence of Campbell Barracks, the rifle range and all of the attendant facilities that go with it, and the population of people throughout those western suburbs that make their livelihoods on the base. In Western Australia we are all very proud of having this base there. What we are doing is simply consulting them, because I am concerned—and I believe DHA is concerned, as you have heard this morning—as to the quality of the accommodation we are providing our very best. We are looking to improve that but doing so in a way that they are happy with. That is where we are at now. Nothing more has evolved. I am happy to give you a briefing on all of this. I am sure that the commanding officer down there will take you through exactly what he has taken me through as to the concerns, wants and requirements.

Senator CONROY: I accept the point you make. We have two separate issues at the moment. One is the quality of the housing—an upgrade needed et cetera. The second is that there seems to be, from all descriptions, a push for the local authorities, local councils and state government to possibly sell off some of the land around the base.

Senator Johnston: No, for the civilians to want to sell or for us to want to sell. Part of the plan might involve the sale of some of the Commonwealth parcels of land. But nothing is fixed in stone. The consultation process is ongoing with the members of the defence community.

Senator CONROY: And you have undertaken to do a survey, to have a conversation about this?

Senator Johnston: We will talk. I think we could do a survey for you, and I think that is not a bad idea.

Senator CONROY: That would be a very comforting thing to be able to report back on. I accept the point you are make—that, the way the base is situated at the moment, the level of security is appropriate. The concern or the issue that I am trying to get to is, if the base is redesigned—with some land sold off and development takes place in some different areas—how you then maintain the base security. Are there caveats on pieces of land? What are the caveats?

Mr Howman : If you look at the land topography there today, the housing area of Seaward Village is well below the level of the base. The base is actually higher than where those houses are.

Senator CONROY: I apologise, as I have not been there yet. I have not quite got it right in my head.

Mr Howman : That is okay. Today, as you are driving into Seaward Village, there is quite a long driveway, of a few hundred metres, and there are civilian houses all down there. Those houses are actually quite close to the base today and have been there since the development happened decades ago. So, already, the security of the base takes into consideration the close proximity of civilian houses to the base—noting that the base is elevated and has dirt batters around the base. With any future involvement where the council may agree to some of its land being sold, for example, or something like that, they will work very closely with us.

We have a very good and strong relationship with the mayor. I personally have a strong relationship with the mayor of Nedlands City Council and also the CEO of the Nedlands City Council. They are very respectful of the base being there. As the minister said, they enjoy the fact that the unit is there, and they will work very closely—

Senator CONROY: I would feel very secure if I had a bunch of SAS guys living next door too.

Mr Howman : So would I.

Senator CONROY: That is the about the definition of security. Not a lot of break-ins take place there, I am betting.

Mr Howman : Beyond the council, the state planning authority is also working very closely with us.

Senator CONROY: How often do you meet with the mayor of the local council? Is that a monthly meeting or a yearly meeting?

Mr Howman : I met with the CEO about five weeks ago.

Senator CONROY: I said the mayor.

Mr Howman : I met with the mayor about four or five weeks prior to that. I meet with him every quarter to a third or thereabouts. I meet with mayors all around the countryside depending on what the issues are. I keep him very much abreast of what is happening here. There is also another group of very interested community-minded members there. They have formed a group called the Friends of Allen Park. Abutting that whole estate is a large parkland area—

Senator CONROY: Who owns that park—is it Commonwealth, is it state?

Mr Howman : I cannot answer that question. I assume it is state land, but I cannot answer that question.

Senator CONROY: But you do not think it is Commonwealth?

Mr Howman : I believe it is not Commonwealth land.

Senator CONROY: You are not looking after it?

Mr Howman : No. It is not our land, but it abuts a playing field and all sorts of things. This group, the Friends of Allen Park, are very socially and community minded. We have a very good relationship with them as well. Because we are a part of the larger community, we need to make sure that whatever we do there fits into the needs and desires of the larger community. We will work very closely with them as well.

Senator CONROY: I will just come back to something the minister mentioned before. I am not sure if the word used was 'parcels' or 'pockets' of land that could possibly be part of a sell-off if there is a rationalisation taking place. Are there any Defence assets on those parcels of land? Would you be moving some things to somewhere else because they are in the way?

Mr Howman : Zero. Defence operational assets: zero.

Senator CONROY: 'Operational' is one word I always look to go past. And when someone wants to subdivide something I always want to know what the other division is. There are no operational assets. What other assets are there?

Mr Howman : DHA housing assets.

Senator CONROY: Under a proposal you would actually be knocking down some Defence housing and using the land—you would not knock it down, possibly, but you would flog it off and that area would include some Defence housing. The minister has described it as fairly subquality.

Mr Howman : Just to qualify, there is Defence housing but not at that location. There is DHA owned housing at that location. There is no Defence asset.

Senator CONROY: Sorry, that is just my—

Mr Howman : I am just qualifying it. However, there is a Defence asset there, which is a childcare centre. That childcare centre is very, very important to the community—extremely important to the community.

Senator CONROY: I am sure it is. Is it the only one in the area?

Mr Howman : It is the only one that is in Seaward Village—

Senator CONROY: That services the base?

Mr Howman : It services the members there, and I suspect it may also serve as some civilian members—I do not know. Whatever DHA does in any redevelopment of that area, we would be very conscious that that facility would close on Friday and reopen on Monday.

Senator CONROY: What does that mean?

Mr Howman : If we have to relocate that, for example—we may need to, because it is currently at the bottom of a hill next to a swampy area. I do not think it is quite appropriate for where you would have a childcare centre in the future. We may want to locate that to a different area. If we did, we would build a new childcare centre first while the other one is still operating and then we would look to move the operation over a weekend so that the children could go to the new one.

Senator CONROY: Is there a site that is possibly easy to identify? You could calm people's fears if you said, 'We've got a spot over there if we were to go down this path.' I think what you are describing is a very sensible path. You would say, 'We will be closing that one, but before anything happens the new one will be built over there.' Everyone could say: 'That's great—a brand-new facility. It is a different area but it is going to be better. By definition it will have all the new mod cons of a childcare centre.' So have you identified an area that it could go to?

Mr Howman : The answer is: we have not yet identified an area, because it is at the very early planning stages, and we need to work with the local council to get DA approvals as well.

Senator CONROY: Would you still be on your own land or would the childcare centre be on what would then be state or council owned land?

Mr Howman : The childcare centre would be within the village. We need to do a rationalisation of the ownership of land in that village. As I said, the parks need to be realigned and roadways need to be realigned. DHA does not own the roadways; they all need to be realigned. But we are working very closely with both the state planning authority and also the Nedlands City Council.

Senator CONROY: When you say it would be in the village, by definition it would no longer be on DHA land?

Mr Howman : It is currently on Commonwealth land, on Defence owned land, not DHA land. What I am trying to say is that it is within the bounds of the village today. Somewhere in the boundary of the village today will be a new childcare centre. I cannot say exactly where, because it is still early days. We are looking at options all around the place. We will go through a number of iterations of that. We will involve the local community, being the Defence families. We will talk with them; we will get their input.

Senator CONROY: I appreciate the point you are making. Just from my cursory discussion with you, it does sound like you are a fair way down the thought/planning stage.

Mr Howman : DHA has been looking at options for over six years now while I have been involved.

Senator CONROY: Have you given a briefing? Again, the simplest way to avoid anyone getting concerned is for you to say, 'This will be the case. We will be doing this. It might be 300 metres on average to the childcare centre for families and for some it will be 500 metres or one kilometre.' I am told that I am going there on 5 and 6 August, so I will be able to have a much more informed conversation next time we see each other.

Mr Howman : I would love to drive you around there. To answer your question, what I have seen is a briefing that has been given by Defence to their members there with a diagram—one of many that are floating around—which indicates a new location for a childcare centre.

Senator CONROY: Has that been given to all the families?

Mr Howman : I do not know whether it has been given to all the families but it has been given to some of the families. It came back to me from a family member, so it has been given to some family members.

Senator CONROY: Have the families being given a rough briefing yet on the details you have been giving me?

Mr Howman : Families have seen that diagram.

Senator CONROY: Receiving a diagram in the post is not the same as the sort of conversation we are having.

Mr Howman : On that document there were a number of points about it.

Senator CONROY: Are you able to give us—

Mr Howman : DHA did not give that briefing.

Senator CONROY: Could we get it tabled? Was it Defence that gave it?

Mr Howman : Defence gave that briefing. I do not have that. I have seen it, but I do not have it. It was a Defence presentation to the members. It was not a DHA presentation.

Senator CONROY: Without being critical, it sounds like there is a coordination issue. It would be good if you knew what was being told to the families and had a little bit of input into it because they are coming to you to blame you. You are saying, 'Actually we did not give the briefing. We are not quite sure what was in the full briefing.' Are you able to coordinate—

Senator Johnston: We are a long way from a formal plan are being agreed to because the consultation process is still ongoing.

Senator CONROY: Could we get a copy of that, given it has been circulated to some or, possibly, all families?

Mr Howman : This is a very early stage in the consultation. We are probably talking about a couple of years yet until this concludes. It is very early stages.

Senator CONROY: Is it possible for us to get a copy of the document that has been circulated? This is not so much to you, Mr Howman; this is more for the minister.

Senator Johnston: Let me take that on notice because we have some commercial interests in terms of the land. I will get the advice of the experts and, if we can, we will show you when you visit so you can understand what the plans are.

Senator CONROY: That would be great. I was going to ask, although you may not be able to answer, what sort of value you would see for that land. I appreciate that you may not be able to answer that.

Mr Howman : At this stage, it would be very difficult to answer that because we have not formulated final plans. We cannot answer that question.

Senator CONROY: Have we already got a security assessment done of the new proposals? There is no point in you running off down the path and saying, 'We have done a deal with the council and everyone is happy,' if then Minister Johnston says, 'Just a minute: that particular configurations fails the security assessment.' Have we had a security assessment?

Senator Johnston: We need to talk the base commander and his personnel before we go anywhere. When they are happy, that is when things will start to come together.

Mr Howman : It is far too early. We have really only just kicked off this phase of the discussion with the families via Defence. We have an agreement with Defence that they will engage the families at this particular time.

Senator CONROY: Do you have someone at the briefings? It sounds like it might be an idea to have—

Mr Howman : DHA does not have an official at the briefings; however, as I mentioned, we have staff on the site. We have agreed with Defence at this stage that they will manage those briefings. At a later time, DHA will become involved. It was more to elicit feedback at this stage from the members. That feedback will help us to start to finalise the plans that we will come up with. It is a very early stage of the whole program.

Senator CONROY: I appreciate that. I want to go back to the security issue again for a second. Have any previous proposals you have done around the country needed to be amended because you had a security assessment that came along and said, 'No, you have to change it a bit'? I am a little bit concerned that the cart is being put before the horse here. We almost need to be doing them in tandem. I would not want to find out that you have gone off and got relative agreement and the council are happy—they are picking up dollars; they are not going to care—and suddenly the minister says, 'Hey, actually that doesn't.' It would seem to save time. I am sure you understand what I am saying.

Mr Howman : DHA and Defence are working in lockstep on this development. Most of the developments we do are not abutting up to Defence facilities, so we do not do that.

Senator CONROY: So you have not had any experience in the past where your proposals, after they have been completed, have bumped into a security assessment that says, 'Just a minute'—no examples at all?

Mr Howman : Not while I have been at DHA. That is correct. And, as I say, we are working very closely with Defence all the way through here.

Senator CONROY: Have you received a security assessment yet from Defence or submitted it for an assessment yet to Defence, even though it is early days?

Mr Howman : There is nothing to be assessed yet, because we have not finalised a plan.

Senator CONROY: You did sound like you had a reasonable proposal. Six years is a long time. I am not saying you have been working hard at it for six years, but you did sound fairly definitive on a proposal—which is not a final plan—that you have worked up already. I am just asking you, to save time later: have you had a chance to have it stress tested or to have the tyres kicked?

Mr Howman : In the last two weeks we have had three iterations.

Senator CONROY: Just to save me asking too many more questions, can you give us a list of your consultations of Defence—because you are handling it, with the families, and your interactions with council, Defence and security?

Mr Howman : Yes. We have got all that documented, so we can provide that.

Senator CONROY: Thank you.

Senator Johnston: So we are done?

Senator CONROY: As I said, I promised I would only be very quick—about an hour—and I will finish up there. Thank you to the chair. I know you thought that that would have been your last ever estimates the other day, and apologies for subjecting you to it on your last parliamentary sitting day.

CHAIR: By the grace of God, I have had an additional one! But Senator Edwards actually has a question, I believe.

Senator EDWARDS: Yes. The dividend that you pay to the government as the single shareholder is around $50 million. I am just interested to know the average tax per year that you pay.

Mr Howman : Sure. I can tell you that.

Senator EDWARDS: Because that is actually another dividend to government, isn't it?

Mr Howman : Yes. In 2010-11, DHA returned income tax of $35.6 million and state tax equivalents of $27.1 million and dividends that year of $52.7 million, which is a total of $115.4 million. And then, in 2011-12, DHA provided $21.8 million in income tax, $30.1 million in state tax equivalents and $52.3 million in dividends. In 2012-13, DHA provided income tax that year of $8.6 million and state tax equivalents of $27.1 million and dividends of $49.6 million. In 2013-14, we are forecasting to pay income tax of $28.9 million, state tax equivalents of $27.9 million and dividends of $51.1 million, so a total of $107.9 million.

Senator EDWARDS: Why was there a variation in income tax in those years?

Mr Brocklehurst : I think you are looking at the 2012-13 year, where it dropped by quite a bit. In that year we got some refunds from our prior year adjustments. We also had some R&D claims that we put through associated with some of our major development activities. So there were quite a few adjustments in that one particular year that reduced it in that year.

Senator EDWARDS: You are a property developer, by the very nature of what you do. Once you have decided what third of the development you want, how do you fund the two-thirds that you ultimately are going to deliver to the market?

Mr Howman : DHA acquire some broadacre land and, when we acquire that, we will often go through a rezoning process to have it zoned from its previous use to residential use.

Senator EDWARDS: You make it sound easy!

Mr Howman : It is very simple but it is very time-consuming. We then go through a master planning process, and, through that process, we start to define where the roads will be, what size blocks of land will be there—

Senator EDWARDS: I get it. I get all that.

Mr Howman : Then we go through a DHA process. Then we sit down with our own staff and discuss which blocks of land we need and we define which blocks of land, on paper, we want. Then DHA goes and does that development with our own resources. We use our own funds to resource that development. Broadacre land will probably go over a number of years and a number of phases. We will finance a phase ourselves and at the end of that stage—generally at the end of a calendar year—we will sell off the land that we do not wish to keep. The funds will come in from that land at the end of that year and then we move forward to the next stage.

Senator EDWARDS: So it is a very good business model.

Mr Howman : It is a business model that is sound.

Senator EDWARDS: It is a very good business model. If you did privatise it, do you think that it would have access to some of those more favourable considerations from local government?

Mr Howman : Not at all, Senator. DHA operates under the Commonwealth program whereby it is the competitive neutrality rule. We act without any kick-up from government, as though we were a commercial entity. We get no favour—

Senator EDWARDS: That is loud and clear. So you are actually quite profitable as a property developer, because you have got two-thirds of it. Generally a property developer will work on one-third land costs, one-third development costs and one-third profit. Does your model work like that?

Mr Howman : I cannot comment on the model that other developers use, but that is only one aspect of our business. The major part of our business is property management and managing the $10 billion-plus value of the portfolio that we look after, and that realistically is a pass-through program whereby we collect rent—

Senator EDWARDS: No worries, I get that. I am doing this out of interest; I am not going anywhere so I will not keep you too much longer. So the $10 billion in assets that you manage are the ones that are privately owned, and I think you have said that the $2.2 billion worth of market value homes that you currently own—

Mr Howman : Yes.

Senator EDWARDS: Are you looking to get those off the books at some stage?

Mr Howman : We use our balance sheet to enhance our business. What I mean by that is that it allows us to play the property markets. Because we have got a need to deliver housing for Defence, we go and do that. For example, when the 7RAR moved from Robertson Barracks down to Adelaide it was in the midst of the GFC. DHA was required to build in excess of 500 homes there. At that stage, on paper every one of those homes was built at a loss. Our balance sheet was able to sustain that because there are other parts of the market, for example, in Townsville and in Darwin, that were running very hot so we were able to sell down the balance sheet in those areas to subsidise the homes that we were building down in Adelaide.

However, those stay on our balance sheet. We do not dispose of them, we keep those. When the market improves, we are able then to sell them into the marketplace and make our required profits. So the balance sheet is a very good tool that we use to ensure that we are remaining profitable by doing work that a commercial civilian contractor simply would not do.

CHAIR: With that, and as there are no other questions, I declare this hearing closed.

Committee adjourned at 11:13